News | 11 min read
Low-cost carrier Southwest Airlines flies into Richmond
November 4, 2013
In a moment long awaited by local air travelers, Southwest Airlines started service at Richmond International Airport today.
The low-fare, no-frills carrier is entering the Richmond market initially with just one daily round-trip, nonstop flight to Orlando, Fla., the capital region’s No. 3 destination with about 173,000 annual passengers.
But while Southwest’s arrival at RIC may have small short-term impact, in the long run, the airline could be crucial for the region’s economic competitiveness.
“When the American Airlines and US Airway merger goes through, then there’ll be four (major) airlines left,” said Jon E. Mathiasen, Richmond International’s president and CEO. “It’s important that Richmond has all of these carriers at its airport.”
Right now, five large airlines — Southwest, American Airlines, Delta Air Lines, United Airlines and US Airways — carry more than 80 percent of domestic airline traffic.
“As a community, you want all five serving you,” said Troy Bell, RIC’s director of marketing and air service development.
And the big five fly at Richmond, as well as Southwest’s AirTran subsidiary and discount carrier JetBlue Airways.
Southwest Airlines is America’s largest low-fare carrier and it flies more domestic passengers than any airline — 112 million passengers last year. Richmond International officials have sought Southwest’s service for more than a quarter century.
Historically, the Dallas-based carrier’s entry into a market had produced lower fares and increased passenger traffic, a phenomenon called the “Southwest effect.”
Local officials think the Southwest effect could work its magic in Richmond, too.
“It’s a powerful brand. People make an instant association with low fares,” Bell said. “It’s a remarkable brand of service. They’ve received slews of awards and accolades for what they do.”
“When companies are interested in coming to Richmond, they want to know about air fares, they want to know about your airport,” said John Jay Schwartz with Have Site Will Travel Ltd., a commercial real estate brokerage.
“And, of course, Southwest is the brand elite,” Schwartz said. “When you’ve got Southwest, people look at you differently.”
Having Southwest service is “a great economic development plus for the region,” said Schwartz, who flies as much as 50 times a year.
Southwest will serve Richmond in parallel with its AirTran subsidiary, which flies four roundtrips daily to Atlanta. Southwest bought discount-carrier AirTran in 2011, though the companies are still operating as separate carriers.
The AirTran brand will be subsumed into Southwest at RIC by the latter part of 2014, said Dave Ridley, Southwest Airlines’ senior vice president for business development, when the integration of the two airlines will be complete.
Whether the airline provides more flights to more destinations from Richmond depends in large part on how well its service is received by the region’s traveling public, Ridley said.
The airline’s expansion of service in Richmond, “like everything else in our business, is TBD” — to be determined — Ridley said. “One of the secrets of our success in the airline business has been conservative growth.”
While nowhere near making anything approaching a commitment to fly Richmond-to-Chicago or Richmond-to-Houston, Ridley said, “it would certainly be reasonable to think that the airports you’ve mentioned would be top candidates.”
“We’re certainly hopeful that we’ll be able to add points on our map,” Ridley said. “We’ll have to see how the market responds.”
“They will do Chicago, write that down,” said Michael Boyd, president of Colorado-based Boyd Group International, an aviation consulting firm.
“They’ll probably do Houston. Baltimore could be in the cards,” Boyd said. “Denver is always a possibility.”
“Over time, they’ll add more flights and more destinations,” Schwartz predicted, though he noted that “you’ve got to use it or lose it.”
“More Richmonders will use them and they’ll grow and grow and grow,” Schwartz said, “and that will be good for Richmond.”
Though airline ticket prices are based on demand, “their flights are typically a little cheaper,” Schwartz said.
While prices vary with demand and specific travel dates, during November and December airfares posted last week were running from about $160 to $640 for a Richmond-Orlando roundtrip, nonrefundable ticket.
Southwest’s entry into the Richmond market is “fantastic,” said Kim Scheeler, president and CEO of the Greater Richmond Chamber, the metro region’s leading business advocacy group.
“It continues to create more opportunities to broaden the markets we can reach with a carrier that has a reputation for keeping fares low,” Scheeler said.
“The key for them, like any airline, is can they fill the planes?” Scheeler said.
Because Southwest will fly 143-seat Boeing 737s on the Orlando service, rather than the 117-seat Boeing 717s AirTran uses, RIC will likely see an increase in passenger traffic on that popular route, airport officials said.
Jack Berry, president and CEO of Richmond Region Tourism, the area’s tourism promotion agency, remembers when AirTran initially entered the RIC market in 1998 and only lasted 11 months for lack of passengers. AirTran returned to Richmond in 2005.
Tourism is a $2 billion business in the five localities that are members of the Richmond Region Tourism organization. More than 7 million people visit here annually.
“If consumers chase Southwest away, there’s no other low-cost carrier we can bring in,” Berry said. “There’s no one behind them. They’ve absorbed AirTran and JetBlue is already in the market.”
Southwest Airlines’ customer service is unmatched, said aviation consultant Boyd. “They don’t give passengers more than a sack of peanuts, but people get off and say they love it.”
Richmond-based marketing consultant Peter Kohn, a frequent airline passenger, described Southwest’s service as “very adequate and efficient.”
Still, “it’s nothing but a good thing for Richmond in terms of pricing and increased service,” Kohn said. “I’d like to see something open up so we had access to the rest of the country, not just Orlando.”
David K. Cunningham, a Richmond businessman and native Texan, also has flown Southwest.
“My most common destination is in Texas and they have a lot of flights going that way,” the Richmond businessman said. “Hopefully, it will increase the number of flights going to Houston and reduce the fare.”
“They have a really outstanding reputation,” Cunningham said. “It will be interesting to see if their performance lives up to it.”
Southwest is mindful of that issue. “We don’t want to overpromise and underdeliver,” Ridley said.
While its fuel bill is shrinking and its profits soaring, Southwest’s average fares are rising.
Southwest’s third-quarter net income jumped to $259 million from $16 million in the year-ago period. Revenue rose 5.5 percent to a record $4.55 billion, and the average one-way fare on Southwest increased 11.3 percent, to $159.39, versus $143.24 a year ago.
Mergers have reduced the number of competitors in the U.S. airline industry, and the remaining air carriers are boosting fares by controlling growth and limiting available seats.
With Southwest, American, Delta, United and US Airways flying to and from Richmond International, “those five carriers can get you from Richmond to the rest of the world,” Boyd said.
However, “they’re not trying to kill each other anymore,” Boyd said. “They’re not out there to get into each other’s territory.”
In 1978, federal airline deregulation set off an explosion of airline startups, an orgy of price wars, wild swings in air carrier profitability, and a mess of bankruptcies, mergers and failures.
The U.S. airline industry has shrunk from more than 20 major brand-name carriers in 1978 down to five network airlines, and soon to be four with the expected American-US Airways merger. In that time, the industry saw 190 bankruptcies.
The era of many competing airlines isn’t coming back, Boyd said.
Southwest has been consistently profitable for the past 40 years.
That alone sets it apart from the rest of U.S. air carriers.
The U.S. airline industry’s profits have hovered around zero since federal airline deregulation in 1978, and the industry lost more than $23 billion dollars in 2001-2003, outpacing the total earnings of the past.
All the major legacy carriers — United, US Airways, American and Delta — have sought bankruptcy protection.
Those bankruptcies have allowed the legacy carriers to lower their labor costs, while fuel costs have risen for all airlines, narrowing the advantage Southwest has had over its competitors.
Southwest went from a 45 percent advantage in operating costs over its competition to about 25 percent now, Southwest’s Ridley said.
But, Ridley noted, his airline still has lower operating costs than its rivals, which “allows us to still consistently offer more low fares than the other guys.”
Nonetheless, RIC’s Mathiasen said, “We’re not going to see, I believe, anytime soon the competition we saw between airlines in the early 2000s.”
But, he said, “What I’m excited about is the commitment and decision by Southwest to serve Richmond.
“There are some cities, like Sarasota (in Florida), where they said they were not going to continue,” Mathiasen said.
And Southwest is cutting some of its flights out of Norfolk International Airport because of reduced demand.
Travelers flying out of Norfolk will lose nonstop service to Jacksonville, Fla., and Nashville, Tenn., in March when Southwest eliminates those flights from its schedule, a Norfolk airport official said last week.
Assuming the American-US Airways merger goes through, Mathiasen said, having Southwest at Richmond International still offers more opportunity for competitive fares and service than a market with fewer carriers.
Delta is Richmond’s dominant airline now, carrying about 33 percent of local air travelers in September. American and US Airways combined had about 33 percent also, with United carrying almost 19 percent.
AirTran and JetBlue each had about 8 percent of the Richmond market.
RIC serves about 3.2 million passengers annually.
Since deregulation, air carriers have generally been able to set fares in response to customer demand and the prices offered by competitors.
As a result, fares change much more rapidly, and passengers sitting in the same section on the same flight often pay different prices, according to Airlines for America, the trade organization of the principal U.S. airlines.
Airlines also are free to enter and exit domestic markets at will, and set their schedules in response to market opportunities and competitive pressures.
Along with price, schedule is a key consideration for air travelers.
For business travelers, who typically are time-sensitive and value convenience, airline scheduling is often more important than the ticket price, though price still matters.
Southwest’s seating policy also sets it apart from other airlines.
“We don’t assign seats on Southwest flights, so feel free to sit in any available seat,” the airline says.
However, the airline provides a number of ways for passengers to get preference for early boarding so they can pick the seat they want — they can buy a special business fare to get into one of the first boarding groups; qualifying members of the airline’s frequent-flier program can get priority boarding; and passengers can pay a fee to check-in between 36 hours and 24 hours before departure for a boarding pass to improve getting into one of the early boarding groups.
Otherwise, passengers are put into different boarding groups based on the order of check-in 24 hours before departure.
AirTran frequent-flier points can be transferred to Southwest, Ridley said, and frequent fliers will be able to be among the first 60 passengers boarding: “Our objective is to protect the AirTran loyal customers.”
Southwest doesn’t serve meals, but peanuts, pretzels and soft drinks are free.
The airline also allows passengers to change flights and check two pieces of baggage without charge.
“You don’t get stuck with $120 in bag fees,” Ridley said. “It’s real money. It just doesn’t show up in the fares.”
“The value proposition is still there,” Ridley said.
Copyright Richmond Times-Dispatch. Used by permission.
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